This week on “Mind Your Own Business”, I want to talk about a cool concept called price elasticity, and price elasticity is very important when it comes to making pricing decisions in your business; let me explain. 

So some products have high price elasticity; what that means is that customers don’t tend to be very price-sensitive, other things are more important in the decision-making process; some products, however, are very price-sensitive, and those products have low price elasticity, so you have high price elasticity and low price elasticity. 

To bring this concept to life I like to use the example of a petrol station, the price of fuel tends to be very very price sensitive, you’ll see that there’s very low variability in the price per litre of diesel or petrol across many many petrol stations in the specific geographical area however if you go into the shop at the petrol station.

You look at the price of milk and chocolate and ice cream; those products are priced really high compared to the supermarket, so the price elasticity to get people to fill up on petrol quite low the price elasticity of the goods in the shop really high. 

Now, it’s fascinating. Most products have a point at which it just no longer becomes viable; there’ll be a point at which the elastic will break,  customers will not pay that much money Now; the reason that this is important for you is because when it comes to the pricing strategy in your business, you can’t just blanket a 10% increase or a 20% increase or a 3% increase what you need to think about if you’re going to do it intelligently is the price elasticity of the different products and services within your business. 

Some products will wear a much higher increase you can maybe put it up as far as 20-30%, potentially some products you can’t even put it up more than 3 or 4 per cent because if you do you’ll turn customers off because that price is just too much. 

So the key takeaway for you from today’s session of “Mind Your Own Business” is to think about your products and services that could do with a little bit of a lift, which products or services aren’t very price sensitive,  which ones are, and how can you come up with a much more intelligent approach to your pricing?

If you’re looking for more small business tips, then we’d like to see you every week on “Mind Your Own Business,”

Marco Soares is an award-winning business coach in Sussex and is available if you’d like help implementing these tactics.